Thursday, March 21, 2013

Too Much Eggnog Over at Commerce?

"US Retail Sales Beat in February, Topping Consensus Forecasts". "Retailers got an Unexpected Valentine from Shoppers: Strong February Sales". "US Retail Sales Rose in February by the Most in Five Years". "Retail Sales Surprise to the Upside in February".

So what do those four headlines have in common? Hint: they are not varying reports of the February 2013 US retail sales number. Rather, they are reports of February retail sales for 2010, 2011, 2012 and 2013, respectively. Similarly, the employment data for February 2011, 2012 and 2013 surprised to the upside. In each case, however, for both retail sales and employment, the numbers softened by mid-Spring into Summer, disheartening investors who were convinced that the long awaited green shoots of economic recovery were finally taking root.

Now we can ask, what is it about the US economy that causes the data to be so strong in January and February only to slip back into weakness a few months later? Or, we can ask, what is it about the seasonal adjustment models used by BLS and Commerce that cause consistently false positive readings on the economy during the winter months?

There have been numerous articles written on this topic, but a recent article on ZeroHedge confirmed our suspicions that the seasonality models might be in need of some, well, adjustment. What they found was that the surprisingly strong February 2013 retail sales number of 1.1% (vs expectations of 0.5%) before seasonal adjustments "actually posted the first
sequential decline since 2010, as retail sales declined from $382.4
billion to $381.0 billion: this was the first sequential decline in retail sales in the month of February in three years (http://www.zerohedge.com/news/2013-03-13/adjusted-february-retail-sales-rise-more-expected-actual-retail-sales-post-first-dec).

Maybe it's time for Commerce and BLS to examine whether the consistent sputtering of the economy throughout the first half that we've seen in each of the past three years might be more their form, than the economy's substance.